Brics bank

Is it all over for the rise of the BRIC grouping (Brazil, Russia, India and China)?

On one level, this seems like a rather odd time to be asking such a question, especially when the political leaders of the BRICS countries (the four named above plus South Africa) have recently agreed to set up a joint development bank to be headquartered in Shanghai. So, the BRICS name is certainly here to stay, and in terms of global governance, their influence is likely to rise as a group because of the bank. Read more

The Bretton Woods conference aimed to reshape the international financial system and end the protectionism that, in the view of the US and UK, had contributed to the drift towards the Second World War. Seventy years on, does the recently formed Brics Bank – set up by a group of emerging economies – threaten the legacy of Bretton Woods? Read more

The New Development Bank launched this week in Brazil by the leaders of the Brics countries – Brazil, Russia, India, China and South Africa – is to boost infrastructure and sustainable development projects through loans, guarantees, credits and equity investments.

But the bank’s establishment also enhances another key geoeconomic ambition of the Brics: to conduct more trade in local currencies, thereby diluting the dominance of the US dollar. Already, there is plenty of evidence to underscore the vitality of this ambition. Read more

Leaders of Brazil, Russia, India, China and South Africa are expected to ratify an agreement this week that would establish a Brics bank at the Brics summit in Fortaleza, Brazil.

Development finance is already crowded. Apart from the multilateral and regional institutions, there are several such sub-regional institutions as the Caribbean Development Bank, the Islamic Development Bank and myriad national development banks like China Development Bank and Brazilian Development Bank (BNDES). BNDES is now much bigger than the World Bank in terms of gross disbursements; it even has branches in South Africa, the UK and Uruguay.

Overlap and duplication, conflicts between national, regional and multilateral interests are frequent and unavoidable – making the case for another development bank underwhelming. Read more

When Narendra Modi, prime minister, meets the leaders of the BRICS nations in Fortaleza in Brazil this week, the main topic of discussion will be the mandate of the BRICS development bank – and its location.

Shanghai, and more recently Delhi and Johannesburg have thrown their names into the ring of cities vying to host the bank’s headquarters. But China is a closed state and has ambitions to dominate BRICS. Johannesburg is too small, a fledgling in the world of finance.

The most appropriate and natural choice for locating the bank is Mumbai. There are several reasons why. Read more

If you’re an emerging market and there’s a geoeconomic grouping you’re looking for, you’ve got a few to choose from. In Asia there is Asean - ten countries in search of common ground. In Latin America there is Mercosur - five countries in search of common tariffs. And from the Atlantic west to the Black Sea there is Asia-Pacific Economic Co-operation – four adjectives in search of a noun.

But none of these has the distinction of having been a marketing campaign by Goldman Sachs got out of control. The Brics nations, apparently noticing a small clearing in the densely-thicketed field of international relations, seized on the designation to set up their own diplomatic process. The sixth leaders’ summit will take place next week in Fortaleza, Brazil, with the host nation hopefully performing better than at its other major international gathering.

Shanghai is leading a race to host the headquarters of a new “Brics” development bank. Jonathan Wheatley, deputy emerging markets editor, looks at what purpose a Brics bank would serve and whether the Brics acronym is still relevant today.

As a coordinated entity, the BRICS grouping of emerging markets has produced little except inspiring the name of a widely-read blog.

Next month, the five governments – Brazil, Russia, India, China and South Africa – are planning to erect an actual edifice amid the swirling mists of rhetoric with the launch of a development bank dedicated to filling some of the gigantic hole in the financing of infrastructure and growth in fast-growing emerging economies.

The BRICS are seeking to avoid some of what they say are the faults of the World Bank and regional development banks – too much rich country dominance and too many conditions attached to lending. But that leaves the exact function and operation of the BRICS bank open to a great deal of political jockeying and uncertainties over how it is run.

The BNDES, Brazil’s government-owned development bank, will open its first Africa office on Friday in South Africa’s commercial capital of Johannesburg. Only the third overseas office for the Banco Nacional de Desenvolvimento Econômico e Social after Montevideo and London, it signals the ever-growing ties between Latin America’s largest economy and the world’s fastest growing continent. Its goal is simple – to push Brazilian companies deeper into Africa. Read more

On the sidelines of this week’s G20 summit, the Brics nations are expected to reveal details of how their proposed $100bn alternative to the IMF will operate. Unveiled at the 5th Brics summit in Durban in March, the Contingent Reserve Arrangement (CRA) should in reality be seen as a clever tactic to extract more influence at the G20 rather than a functional addition to the multilateral system, let alone a genuine alternative to the IMF. Read more

The creation of the Brics Development Bank, announced during the Brics Summit in South Africa in March, is a key move towards giving some backbone to the Brics as a group. The five nations will again work on setting up the Bank as they hold a parallel meeting to the G-20 gathering in St Petersburg in September.

The BDB is not being designed to compete with traditional institutions such as the World Bank and other multilateral agencies. Quite the contrary, its motivation is to perform a complementary role to existing Washington-based institutions. It should be welcomed by the entire international community – and particularly by the Brics themselves. It will allow them to show that their constructive capacity is for real. Read more

But, according to Gill Marcus, governor of the South African Reserve Bank, there is still a long way to go to turn their ambition into reality. “This is a very high-level concept and it is still very early stages. What we are looking to do is to provide more resources for infrastructure development,” she told the FT on the margins of the Ambrosetti finance forum held over the weekend in Italy. Read more

The plans of the Brics countries to establish a Brics bank are gathering pace in the advance of the fifth summit next month of the five countries – Brazil, Russia, India, China, and their poor cousin South Africa.

Even though key decisions have yet to be made – such as where it would be based and what exactly it would do – some elements are emerging from the discussions, notably the bank’s possible capital – $50bn. Read more